Stay bullish and diversified - Global Market Brief June 2018 - Standard Chartered

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Stay bullish and diversified - Global Market Brief June 2018 - Standard Chartered
Wealth Management Advisory

Stay bullish
and diversified

                             Global Market Brief
                                         June 2018
Stay bullish and diversified - Global Market Brief June 2018 - Standard Chartered
Standard Chartered Bank
    Global Market Brief | 25 June 2018

2   Foreword

                                                             Diversity matters. That is one lesson markets again
                                                             gave us in the first few months of 2018. After a very
                                                             strong 2017, we saw a “break in diversity” in Q1 18,
                                                             when the markets got complacent with the positive
                                                             narrative for global equities and the negative narrative
                                                             for the USD. With diversity having now returned to
                                                             markets, through a typical sudden pick-up in volatility,
                                                             sharp moves have become less likely, at least for now.
                                                             A key pillar of our investment philosophy is the pervasive role of diversity:

                                                             1)   Diversity of views and objectives among market participants to ensure
                                                                  resilient and liquid markets

                                                             2)   Diversity in the input of views and ideas to make better investment
                                                                  decisions

                                                             3)   Diversity of assets held to ensure growth and resilience of one’s
                                                                  portfolio

                                                             As we went through the end of 2017, we saw global equities rally strongly
    Alexis Calla                                             amidst very low levels of volatility, while the USD declined in almost a
    Chief Investment Officer                                 linear fashion. Simultaneously, we saw a significant decline in market
                                                             diversity, as measured by various indicators such as investor positioning,
                                                             “fractal dimension”* and the lack of diversity in the views of brokers and
                                                             asset managers. In hindsight, this was indicating that we were likely to see
                                                             at least a short-term reversal of these trends and a pick-up in volatility,
                                                             which is exactly what the market delivered.

                                                             Since then, we have seen the return of diversity. While positioning in some
                                                             instances remains quite high (for example, short-term speculators are still
                                                             significantly short US Treasury and USD futures), other indicators suggest
                                                             there is less reason to be concerned. Certainly, there is significant diversity
                                                             of third-party views, with the debate on the USD's outlook becoming
                                                             particularly intense. Meanwhile, fractal analysis* suggests there is less
                                                             “groupthink” when it comes to determining asset price movements.

                                                             Just to be clear, increased diversity, in this context, is not necessarily good
    “Market diversity has                                    or bad. But, just as a rise in volatility is the result of a collapse in diversity,
    returned. Until it recedes                               a rise in diversity reduces the risk of any sharp asset price movement, be it
                                                             gains or losses. Therefore, while we remain constructive on the outlook for
    again, this means, market                                global equities, we believe gains may take some time to come to fruition.
                                                             We will continue to closely monitor our diversity indicators.
    moves (up or down) are
    likely to be less severe                                 * Fractal analysis is a mathematical way of measuring the diversity of supply and
    than we saw in the first                                 demand forces. “When investment horizons converge to a groupthink herd, the
                                                             fractal structure breaks down… This is a warning sign of an impending liquidity-
    half of 2018.”                                           triggered trend reversal, either short-term or long-term.” (Source: BCA Research)

    This reflects the views of the Wealth Management Group                                                                                       2
Stay bullish and diversified - Global Market Brief June 2018 - Standard Chartered
Standard Chartered Bank
    Global Market Brief | 25 June 2018

3   Investment strategy

                  Stay bullish and diversified
                  • We continue to strongly favour equities, given they typically outperform
                                                                                                                                                           IMPLICATIONS
                      in the late stages of an economic cycle. We favour global equities over
                      corporate bonds and cash. Within equities, the US remains our most                                                                   FOR INVESTORS
                      preferred region, supported by strong earnings growth, though we
                      expect most equity markets to perform well.
                                                                                                                                                           Global equities remain          our
                  • Yields are gradually becoming more attractive. USD interest rates and                                                                  preferred asset class
                      bond yields have risen significantly over the past 12-18 months. As global
                      growth remains strong and inflationary pressures gradually build, we
                      expect this trend to broaden to other regions, such as the Euro area. This                                                           Relative preference for US
                      will, over time, allow income investors to achieve higher yields.                                                                    equities   and    EM   USD
                  • Now is not the time to go all-in on risky assets. We favour diversification.                                                           government bonds
                      While our central scenario is bullish for global equities, timing the end of
                      the market cycle is fraught with difficulty. Therefore, ensuring
                      consistency with one’s appetite for risk and including investments that                                                              Balanced        strategies     offer
                      should offset losses in the event of a sustained equity market sell-off are                                                          attractive risk/reward; multi-asset
                      key, in our view.                                                                                                                    income remains relevant for
                                                                                                                                                           income investors

    Financial market performance in the first half of 2018 has been in stark contrast to
    2017. At face value, asset class performance suggests a similar environment to
    last year with global equities, bonds and commodities (ex-agri) delivering 2.7%, -
    1.1% and 8.9% returns since we published our 2018 Outlook, respectively.
    However, this number masks the journey: while December and January were
    characterised by strong returns, they were followed by sharp losses in February
    and March and have been relatively range-bound thereafter.

    Looking forward, we continue to see the global economy as being in the late stage
    of the economic cycle, as envisaged in our 2018 Outlook. This is a period usually
    characterised by a gradual heating up of inflationary pressures, increase in policy
    rates and strong equity market performance.

    Figure 1                                                           Figure 2
    Global equities trendless in H1 this year                          USD rally a key risk to EM assets
    MSCI AC World in H1 of 2017 and 2018                               MSCI EM (LHS) and USD index (RHS, inverted)
                                                                                1,600                                                        70
            120
                                                                                                                                             75
                                                                                1,200                                                        80
            110
                                                                        Index

                                                                                                                                             85
                                                                                                                                                   Index
    Index

                                                                                 800
                                                                                                                                             90
            100                                                                                                                              95
                                                                                 400
                                                                                                                                             100

            90                                                                     0                                                         105
             Jan-17   Feb-17    Mar-17   Apr-17      May-17   Jun-17               Jan-05             Jul-09    Jan-14              Jul-18

                               1H17               1H18                                  MXEF index last price   DXY currency last price (RHS)

    Source: Bloomberg, Standard Chartered                              Source: Bloomberg, Standard Chartered

    This reflects the views of the Wealth Management Group                                                                                                                                   3
Standard Chartered Bank
    Global Market Brief | 25 June 2018

7   Macro overview

           US economy in the lead
           • Core scenario: The global economy continues to grow above recent
                                                                                                       IMPLICATIONS
               trend, led by the US, although growth has moderated in the Euro area,
               Japan and China. EMs face increasing challenges from USD strength.                      FOR INVESTORS
           • Policy outlook: We expect the Fed to hike rates two more times in
               2018, the ECB to end bond purchases by December and the BoJ to stay                     The Fed likely to raise rates two
               accommodative. The PBoC is likely to balance growth with reforms.                       more times in 2018
           • Key risks: Inflation surge, mainly in the US; trade tensions; and tighter
               liquidity conditions, especially in the EMs, from a stronger USD
                                                                                                       The ECB likely to end bond
    Core scenario                                                                                      purchases by December 2018,
                                                                                                       while the BoJ remains highly
    The Global Investment Committee continues to assign a 70% probability to a
                                                                                                       accommodative
    scenario of moderate-to-strong growth and limited inflation unfolding in the next
    12 months. The US economy has taken the lead in driving global growth on the
    back of last year’s tax cuts, which has helped boost consumer confidence and
                                                                                                       China likely to balance domestic-
    encouraged businesses to start investing. Growth in Europe and Japan has
                                                                                                       driven growth with structural
    moderated, although they are likely to grow above their long-term potential over
                                                                                                       reforms
    the coming year. China is balancing a growth-moderation with structural reforms.
    EMs have seen fund outflows this year as the USD strengthened, although a
    gradual pace of rate hikes in the US and still accommodative central banks in
    Europe and Japan are likely to relieve some of the pressure.

    Figure 3
    US growth and inflation outlook has been upgraded after the tax cuts in December
                                Benchmark Fiscal
    Region Growth Inflation       rates   deficit Comments
                                                  US emerged as the main global growth driver,
    US                                    while other major economies slowed. Inflation
                                                  is a key risk. Fed to hike twice more in 20 8
                                                  Euro area growth expectations cut further, but
    Euro
    area                                  remain above potential. Inflation still tepid. The
                                                  ECB to end bond purchases by December
                                                  Brexit transition path remains uncertain,
    UK                                    clouding economic outlook. BoE rate hike
                                                  postponed as inflation slows
                                                  Export rebound drives recovery, although trade
    Japan                                 tensions risk delaying private investment. The
                                                  BoJ to keep easy polic amid low inflation
    Asia                                          China’s growth moderates amid deleveraging,
    ex-                                   although consumption remains robust. Asia to
    Japan                                         raise rates modestly to align with the Fed
    EM ex-                                        Pressure on non-Asia EMs likely to ease as
    Asia                                  USD strength dissipates, China remains stable
    Source: Standard Chartered Global Investment Committee
    Legend:     Supportive of risk assets     
                                                Neutral           Not supportive of risk a sets

    This reflects the views of the Wealth Management Group                                                                            4
Standard Chartered Bank
    Global Market Brief | 25 June 2018

8   Bonds

          Turning selective in EM risk
          • Bonds remain a core holding as we expect them to deliver moderate                           IMPLICATIONS
               returns, but we like their defensive nature as we are likely in late stage
               of the US economic cycle. We expect 10-year yields to rise gradually to
                                                                                                        FOR INVESTORS
               the 3.0-3.25% range over the next 12 months.

          • Emerging Market (EM) USD government bonds are our preferred area                            Prefer     EM   USD      government
               within bonds owing to their attractive yield and relatively stable credit                bonds
               quality. However, we reduce our preference for EM local currency bonds
               as we become more selective in where we take EM risk.
                                                                                                        Expect 10-year US Treasuries to
    Figure 4                                                                                            trade in the 3.0-3.25% range
    Bond sub-asset classes in order of preference
                                  Rates     Macro    Valua-
    Bond asset class      View    policy   factors   tions      FX Comments                             Favour slightly short maturity
                                                                    Attractive yields, relative value   profile (5 years) for USD-
    EM USD
    government                                                 
                                                                NA and stabilising credit quality are
                                                                    positive
                                                                                                        denominated bonds

                                                                    High credit quality, defensive
    Asian USD                                       NA
                                                           allocation. Influenced by China              Figure 5
                                                                    risk sentiment
                                                                                                        Where markets are today
                                                                    Attractive yield balanced by
                                                                                                                                         1m
    EM local currency                                        changing central bank stance and    Bonds                 Yield
                                                                                                                                       return
                                                                    currency risks
                                                                                                        DM IG
                                                         Attractive yields on offer, offset
    DM HY corporate                                
                                                         by expensive valuations
                                                                                                        government            *1.55%   0.3%
                                                                                                        (unhedged)
                                                                    Likely to outperform DM IG
                                                                                                        EM USD
    DM IG corporate                                 government bonds. Yield                       government
                                                                                                                              6.51%    -0.4%
                                                                    premium is relatively low
                                                                                                        DM IG
                                                                    Returns challenged by
    DM IG
    government                                   NA      
                                                                normalising Fed and ECB
                                                                    monetary policy
                                                                                                        corporates
                                                                                                        (unhedged)
                                                                                                                              *2.94%   0.2%

                                                                                                        DM HY                 6.26%    -0.3%
                                    
    Source: Standard Chartered Global Investment Committee                                             corporates
    Legend:  Supportive       Not Supportive
                          Neutral                       Preferred Less Preferred  Core              Asia USD              4.96%    0.3%
                                                                                                        EM local
                                                                                                        currency              6.69%    -2.2%
    Calmer waters ahead?                                                                                government
    The first half of 2018 was a challenging period for bond investors as US yields                     Source: Bloomberg, JPMorgan, Barclays,
    rose by nearly 50bps (or 0.5%), leading to losses in most areas within bonds.                       Citigroup, Standard Chartered
                                                                                                        *As of 31 May, 2018
    Additionally, a stronger USD led to the re-emergence of concerns around EMs,
    which led to the underperformance of EM bonds relative to global bonds.

    In our opinion, we have seen bulk of the increase in 10-year US yields and believe
    10-year US Treasury yields are likely to edge only moderately higher to 3.0-3.25%
    range, unless long-term inflation expectations rise sharply. Nevertheless, in light of
    higher currency risks, we choose to be more selective in risk-taking, by reducing our
    exposure to EMs and shortening our maturity profile slightly below neutral (5 years).

    This reflects the views of the Wealth Management Group                                                                                      5
Standard Chartered Bank
    Global Market Brief | 25 June 2018

9   Equities

           US equities are preferred
           • Global equities remain our preferred asset class. Consensus earnings                         IMPLICATIONS
               growth for the MSCI All Country World index in 2018 is 16% and the
               forward P/E ratio is almost in line with the long-term average at 14.9x.
                                                                                                          FOR INVESTORS
           • The US is our preferred region, implying we expect outperformance
               relative to global equities over the next 12 months. Consensus                             Global equities        our     preferred
               expectations are for earnings growth of 21% in 2018, aided by tax cuts                     asset class
               and elevated corporate margins. Technology, energy and financials are
               our preferred sectors.

           • Asia ex-Japan equities have been reduced to core (from preferred),                           US is a preferred market
               implying our expectations of the region performing in line with global
               equities in the next 12 months in USD terms. Double-digit earnings
               growth and attractive valuations are still supportive.                                     Prefer China within Asia ex-
                                                                                                          Japan
           • Euro area equities are a core holding. Rising capacity utilisation paves
               the way for higher capital expenditure. However, the end of ECB
               quantitative easing presents a risk. The UK has been upgraded to core                      Figure 7
                                                                                                          Where markets are today UPDATE
               (from least preferred) on late-cycle growth optimism.
                                                                                                                Market                     Index
           • Emerging Market (EM) ex-Asia is a core holding. Deteriorating                                P/E ratio    P/B        EPS      level
               fundamentals a concern, but high commodity prices can be an offset.                        US (S&P 500)
                                                                                                          17x           3.1x       16%      2,750
    Figure 6                                                                                              Euro area (Stoxx 50)
    US is our preferred market                                                                            14x           1.6x       8%       3,404

                                           Return Economic Bond                                           Japan (Nikkei 225)
    Equity       View Valuations Earnings on Equity Data   yields Comments                                13x           1.3x       7%      22,693
                                                                           Robust earnings growth,        UK (FTSE 100)
    US                                                         potential for share
                                                                           buybacks
                                                                                                          13x           1.7x       8%       7,556

                                                                           Earnings recovery,             MSCI Asia ex-Japan
    Asia ex-
    Japan
                                                     improving margins and fair
                                                                           valuations. Trade war a risk
                                                                                                          12x           1.5x       12%      686
                                                                                                          MSCI EM ex-Asia
                                                                           Elevated oil price
                                                                                                          10x           1.4x       19%      1,303
    EM ex-
    Asia
                                                               supportive of earnings. But
                                                                           rising US rates are            Source: FactSet, MSCI, Standard
                                                                           weighing on markets            Chartered.
                                                                           Improving credit growth is a   Note: Valuation and earnings data refer to
    Euro
    area
                                                     positive. Weak sentiment                 MSCI indices, as of 21 June 2018
                                                                           due to trade war risks.
                                                                           Strong balance sheets,
    Japan                                            falling net debt to equity.
                                                                           Trade war a risk
                                                                           Rising commodity prices
    UK                                               boosting FTSE100, but
                                                                           domestic demand is weak

                                                
    Source: Standard Chartered Global Investment Committee            
    Legend:     Supportive    
                               N eutral  Not Supportive   
                                                           Preferred   
                                                                       Less Preferred    Core Holding

    This reflects the views of the Wealth Management Group                                                                                          6
Standard Chartered Bank
   Global Market Brief | 25 June 2018

11 Alternative strategies

                    Positioning for a higher volatility
                    regime in 2018
                                                                                                                     IMPLICATIONS
                    • Given volatility has risen this year, we believe an alternatives allocation,                   FOR INVESTORS
                       with its defensive characteristics, can be beneficial over the longer term
                       when managing drawdown risk.
                                                                                                                     Use      both    substitutes      and
                    • Our preference is still Equity Hedge; we have also recently upgraded
                                                                                                                     diversifiers
                       Global Macro to a core strategy alongside Relative Value.

                    • Our alternatives allocation is flat 0.01 % YTD, as compared with global
                       equities 0.3% YTD and global fixed income -1.7% YTD.                                          Equity Hedge (preferred); global
                                                                                                                     macro and event driven (core)
   Mid-year performance review
   Global equity markets have had a volatile first half with geopolitics, trade tensions
                                                                                                                     Alternatives allocation weights
   and inflation worries dampening investors’ initial enthusiasm over economic
                                                                                                                     are: Equity Hedge 46%, Relative
   fundamentals and strong corporate earnings. Volatility also spiked early in the
                                                                                                                     Value 28%, Event Driven 8% &
   year, but has now settled at lower levels, albeit higher than the extremely low
                                                                                                                     Global Macro 18%.
   levels seen in 2017. While our central global scenario is positive on global
   equities, we believe we have moved to a higher volatility regime, as compared
   with the recent past. As such, we continue to advocate investing into alternatives                                Figure 9
   strategies, as part of a diversified allocation, to manage overall drawdown risk                                  Where markets are today
   over the longer term.                                                                                                                               1m
                                                                                                                     Alternatives           YTD     return
                                                                                                                     Equity Hedge           1.0%     -0.8%
   Figure 8
                                                                                                                     Relative Value         1.2%     -0.1%
   Traffic light framework alternatives strategies                                                                   Event Driven          -4.4%     -1.8%
                             Description                    View Drivers for strategies to perform                   Global Macro          -0.8%     0.4%
                             In essence, buying                    • Positively trending equity markets            Alternatives
                                                                                                                                           0.01%     0.0%
                   Equity
                   Hedge
                             undervalued stocks and
                             selling overvalued stocks
                                                            • Rising equity market dispersion                 
                                                                                                                     Allocation
                                                                                                                     Source: Bloomberg, Standard Chartered
                            Looking to take advantage              • Lower interest rate levels                 
    SUBSTITUTES

                   Relative of differences in pricing of
                                                             • Cost of funding, narrowing credit
                   Value    related financial
                            instruments                              spreads                                    
                             Taking positions based on
                                                                   • Positively trending equity markets         
                   Event
                   Driven
                             an event such as a merger
                             or acquisition
                                                                 • Rising mergers and acquisitions            
                                                                   • Narrowing credit spreads                   
                             Looking to exploit themes,            • Rising volatility and credit spreads       
    DIVERSIFIERS

                             trends and asset class
                   Global
                   Macro
                             relationships (correlations)       • Increasing cross asset dispersion           
                             at a global level, generally
                             with leverage                         • Clear market trends (up/down)              
   Source: Standard Chartered

   Legend:             Supportive 
                                    Neutral  Not Supportive         Preferred    Less Preferred      Neutral

   This reflects the views of the Wealth Management Group                                                                                                    7
Standard Chartered Bank
  Global Market Brief | 25 June 2018

12 FX

         USD near-term gains possible
         • We continue to expect US trade and budget deficits and narrowing real                IMPLICATIONS
           interest rate differentials to drive USD weakness in the medium term.
           However, in the short term, there remains scope for further USD
                                                                                                FOR INVESTORS
           strength.

         • The JPY is largely range-bound, driven by fears of global trade                      USD weakness medium term
           disruption, interest rate differentials on one side and safe-haven status
           on the other.
                                                                                                EUR strength medium term
         • Asian Emerging Market (EM) currencies remain vulnerable near term to
           contagion. We are monitoring CNY, which has remained an EM anchor.

                                                                                                USD strength near term
  Figure 10
  Foreign exchange; key driving factors and 12-month outlook
                                                                                                Figure 11
                     Real interest                            Broad
                                     Risk    Commodity
                                                                                                Where markets are today
                          rate                                 USD
   Currency   View   differentials sentiment   prices         trend    Comments                                      Current       1m
                                                                                                FX (against USD)       level   change
   USD                                        NA         NA
                                                                       Rate hiking trajectory
                                                                       priced in                Asia ex-Japan           108     -1.1%
                                                                       Monetary policy          AUD                     0.74    -2.1%
   EUR                                        NA              normalisation not yet
                                                                       complete
                                                                                                EUR                     1.15    -1.8%
                                                                                                GBP                     1.31    -2.0%
               
                                                                       Range-bound amid
   JPY                                          NA              opposing constraints     JPY                     111      0.7%
                                                                       Inversely tracking the   SGD                     1.36    -1.2%
   GBP                                        NA               USD awaiting Brexit
                                                                                                As of 21 June 2018
                                                                       clarity
                                                                                                Source: Bloomberg, Standard Chartered
               
                                                                       RBA policy and EM
   AUD                                                          weakness a risk

                        NA
                                                                       Weakening global
   EM FX                                                          growth environment
                  Standard Chartered Global
   Source: Bloomberg,                    Investment Committee 

   Legend: Supportive       
                        Neutral   Not Supportive  Preferred Less Preferred   Neutral

  Bearish USD bias longer term; short-term strength still likely
  Strong counter-trend rally continues. The USD has been supported by
  softening ex-US growth momentum and rising real (net of inflation) US interest
  rates. US international trade policy concerns may be adding to near-term USD
  strength and exposing vulnerabilities for some EM countries, whose asset prices
  have historically weakened during periods of USD strength.

  We remain longer-term bearish. Our view continues to be that the current short-
  term corrective rally will peak and that the USD will re-establish its long-term
  structural decline. We see this driven both by (i) narrowing global growth and real
  interest rate differentials, where central banks collectively begin to normalise their
  policies, and (ii) a renewed focus on US’s twin budget and trade deficits.

  This reflects the views of the Wealth Management Group                                                                                8
Standard Chartered Bank
   Global Market Brief | 25 June 2018

13 Multi-asset

          Late-stage economic cycle can
          benefit a balanced strategy
                                                                                                           IMPLICATIONS
          • We continue to believe a balanced allocation will outperform an income                         FOR INVESTORS
             allocation, given the late-stage of the economic cycle

          • However, for income-seeking investors, a multi-asset income allocation
                                                                                                           Focus on aligning investment
             can continue to help an investor’s regular income goal
                                                                                                           return expectations with your
          • We    update both our balanced and income allocations, review                                  appetite for risk
             performance and highlight key current positioning for H2 18

   In our 2018 Outlook, we shared two distinct asset allocations focusing on goals for                     Put together your allocation using
   i) capital growth investors and ii) income focused investors (Figure 53).                               “building blocks” which are
                                                                                                           diversified across asset classes
   Mid-year, we find the performance of our balanced and income allocations as
   follows YTD, 0.5% and -1.1%, respectively. In sharp contrast to 2017, H1 2018
   has been challenging for asset classes across the board (Figure 49). Looking at                         Tailor your overall multi-asset
   recent history, it reminds us that asset class performances can vary and continues                      allocation in line with your return
   to highlight the benefits of diversifying an investment allocation to generate                          expectations and risk appetite
   sustainable long-term returns.

                                                                                                           Figure 13
   Figure 12
                                                                                                           Key multi-asset views
   A challenging H1 2018 for asset returns
                                                                                                           Allocation                         1m
   Asset class returns from 2012 to 2018 YTD*                                                              performance              YTD    return
      2012           2013           2014           2015          2016          2017          2018*         Total return balanced   0.5%    -1.2%
    Global HY       Global                                     Global HY      Global        Global         Multi-asset income      -1.1%   -0.8%
                                  Asia Corp     Asia Corp
     Bonds          Equities                                    Bonds         Equities      Equities
                                                                                                           Source: Bloomberg, Standard Chartered
      19%             23%           8%              3%           14%           24%            2%
                   Global HY     DM IG Sov                                                 DM IG Sov
    EM Sov HC                                   DM IG Sov     EM Sov HC     EM Sov LC
                     Bonds        Bonds                                                      Bonds
       17%            8%            8%              1%            10%          14%            0%
      Global                                                                 Global HY     Global HY
                   DM IG Sov     DM IG Corp EM Sov HC         EM Sov LC
      Equities                                                                Bonds          Bonds
       16%             0%            8%             1%            9%           10%            -1%
                                                                Global
    EM Sov LC DM IG Corp EM Sov HC DM IG Corp                               EM Sov HC Global Bonds
                                                                Equities
       15%             0%            7%           -1%             8%            10%            -2%
                                   Global        Global
     Asia Corp     Asia Corp                                  DM IG Corp DM IG Corp DM IG Corp
                                   Equities      Equities
       14%            -1%            4%           -2%             6%            9%             -2%
                                                                             DM IG Sov
    DM IG Corp Global Bonds Global Bonds Global Bonds Asia Corp                             Asia Corp
                                                                              Bonds
       11%            -3%           1%             -3%        6%                8%   -2%
                                 Global HY      Global HY
    DM IG Sov     EM Sov HC                                DM IG Sov Global Bonds EM Sov HC
                                   Bonds          Bonds
       5%         -5%               0%             -5%        4%          7%         -5%
   Global Bonds EM Sov LC        EM Sov LC      EM Sov LC Global Bonds Asia Corp EM Sov LC
       4%         -7%               -2%           -12%        2%          6%         -5%
   Source: Barclays, JPMorgan, Citi, MSCI, Bloomberg, Standard Chartered; * performance till 15 Jun 2018

   This reflects the views of the Wealth Management Group                                                                                          9
Standard Chartered Bank
   Global Market Brief | 25 June 2018

14 Our recommended allocations
   Tactical Asset Allocation - (12m)

                                         EM Sov HC                                                  UK Japan
                                           27%                                      Europe ex-      5% 5%
                                                                                        UK
                                                                EM Sov LC              20%
                                                                  18%                                             Asia ex-
                                                                                                                   Japan
                                                BOND                                            EQUITY              28%
                             DM HY                                                             Allocation
                              13%
                                              Allocation
                                            (Asia-focused)                                   (Asia-focused)

                                                              Asia Corp
                                                                 HC                     North                 Other EM
                                   DM IG Corp                   18%                    America                  10%
                                     20%          DM IG Sov                             32%
                                                     4%

                                                                                                                        Relative
                       EM HC Sov                                                         Sub                             Value
                         25%                                                          financials                         28%
                                                                                         43%

                                            EM LC Sov                                                                                         Event
     DM HY &                                  11%                                                                                             Driven
                     Higher Income                                        NON-CORE                                 ALTERNATIVES                8%
     Leveraged
       Loans             BOND                                              INCOME                                   STRATEGIES
        26%            Allocation                        Covered
                                                                           Allocation                                 Allocation
                                                          Calls
                                        Asia HC           44%                              Others
                                         19%                                                                   Equity                    Global
                                                                                            13%
               DM IG Corp                                                                                      Hedge                     Macro
                                DM IG Sov
                 10%                                                                                            46%                       18%
                                   9%

                 Tailoring a multi-asset allocation to suit an individual's return expectations and appetite for risk

   • We have come up with several asset class "sleeves" across major asset classes driven by our investment views
   • Our modular allocations can be used as building blocks to put together a complete multi-asset allocation
   • These multi-asset allocations can be tailored to fit an individual's unique return expectations and risk appetite
   • We illustrate allocation examples for both Global and Asia-focused investors, across risk profiles (page 40)

            BOND                        Higher Income                   EQUITY                      NON-CORE                   ALTERNATIVES
          Allocation                        BOND                       Allocation                    Income                     STRATEGIES
        (Asia-focused)                    Allocation                 (Asia-focused)                 Allocation                   Allocation

   • For investors who want        • For investors who want       • For investors who        • For investors who            • For investors who
     a diversified allocation        a diversified allocation       want a diversified         want to diversify              want to increase
     across major fixed              across major fixed             allocation across          exposure from                  diversification within
     income sectors and              income sectors and             major fixed income         traditional fixed              their allocation
     regions                         regions                        sectors and regions        income and equity            • Include both
   • Asia-focused allocation       • Asia-focused allocation      • Asia-focused               into "hybrid" assets           “substitute” and
                                                                    allocation               • Hybrid assets have             “diversifying”
                                                                                               characteristics of             strategies
                                                                                               both fixed income
                                                                                               and equity
                                                                                             • Examples include
                                                                                               Covered Calls,
                                                                                               REITs, and sub-
                                                                                               financials (Preferred
                                                                                               Shares and CoCo
                                                                                               bonds)

   This reflects the views of the Wealth Management Group                                                                                              10
Standard Chartered Bank
   Global Market Brief | 25 June 2018

15 Asset allocation summary
   Tactical Asset Allocation - (12m). All figures are in percentages.
                                                                    ASIA FOCUSED                                           GLOBAL FOCUSED
                                                                                Moderately                                               Moderately
    Summary                              View Conservative        Moderate      Aggressive     Aggressive Conservative     Moderate      Aggressive       Aggressive

    Cash                                  ●            9              0              0              0            9             0              0               0

    Fixed Income                          ●           66             45             35              9           66             44            35              10

    Equity                                ●           24             40             50             81           24             41            50              80

    Alternative Strategies                ●            1             15             15             10            1             15            15              10

                                                                     ASIA FOCUSED                                           GLOBAL FOCUSED
                                                                                Moderately                                               Moderately
    Asset class                           View Conservative       Moderate      Aggressive     Aggressive Conservative     Moderate      Aggressive       Aggressive

    USD Cash                               ●           9              0               0              0           9              0             0               0

    DM Government Bonds                    ●           3              2               2              0           5              3             3               1

    DM IG Corporate Bonds                  ●           12             9               6              2          16             11             8               3

    DM HY Corporate Bonds                  ●           9              6               5              1          12              8             6               2

    EM USD Sovereign Bonds                 ●           18             12             10              2          15             10             8               2

    EM Local Ccy Sovereign
    Bonds                                  ●           12             8               6              2           9              6             5               1

    Asia Corporate USD Bonds               ●           12             8               6              2           9              6             5               1

    North America                          ●           8              13             17             27          13             21             26             41

    Europe ex-UK                           ●           5              8              10             15           2              4             5               8

    UK                                     ●           1              2               2              4           1              2             2               4

    Japan                                  ●           1              2               2              4           1              2             2               4

    Asia ex-Japan                          ●           7              11             14             23           5              8             10             15

    Non-Asia EM                            ●           2              4               5              8           2              4             5               8

    Alternatives                           ●           1              15             15             10           1             15             15             10

                                                      100            100            100            100          100           100            100             100

    Source: Bloomberg, Standard Chartered
    For illustrative purposes only. Please refer to the disclosure appendix at the end of the document.
    Note: 1. For assets assigned small allocations, investors may prefer to instead allocate to a broader category. 2. We are changing the way we cover
    ‘Commodities’ from our asset class categories.

    ●    Least preferred                ●     Core holding           ●     Most preferred

   This reflects the views of the Wealth Management Group                                                                                                          11
Standard Chartered Bank
   Global Market Brief | 25 June 2018

16 Market performance
   summary*
                                                                                    Bonds
                                                                                                                   Year to date         1 month
                                                                         SOVEREIGN
                                                                         Global IG Sovereign                          -1.5%           0.3% 
                                                                         US Sovereign                                 -1.4%           1.1% 
                                                                         EU Sovereign                                 -2.3%  -0.1% 
                                                                         EM Sovereign Hard Currency                   -5.3%  -0.4% 
                                                                         EM Sovereign Local Currency                  -5.7%  -2.2% 
                                                                         Asia EM Local Currency                       -3.8%  -0.8% 
                                                                         CREDIT
                                                                         Global IG Corporates                         -3.2%           0.2% 
                                                                         Global HY Corporates                         -0.8%           0.2% 
                                                                         US High Yield                                 0.7%  0.9% 
                                                                         Europe High Yield                            -3.8%  -1.6% 
                                                                         Asia High Yield Corporates                   -2.4%  0.3% 

                                                                                   Commodity
            Equity                                                                                                 Year to date 1 month
                                                                         Diversified Commodity                       -1.2%  -4.8% 
                                          Year to date      1 month      Agriculture                                 -5.2%  -8.6% 
    Global Equities                          0.3%         -1.4% 
                                                                         Energy                                       5.0%  -5.9% 
    Global High Dividend Yield Equities     -3.3%         -2.7% 
                                                                         Industrial Metal                             -4.2%  -2.6% 
    Developed Markets (DM)                   1.2%         -1.0% 
                                                                         Precious Metal                               -4.6%  -1.8% 
    Emerging Markets (EM)                   -6.0%         -4.7% 
    BY COUNTRY                                                           Crude Oil                                    12.2%  -7.8% 
    US                                      3.8%    0.9%             Gold                                         -2.8%  -2.0% 
    Western Europe (Local)                 -0.7%    -3.9%         
    Western Europe (USD)                   -3.7%    -4.9%         
    Japan (Local)                          -2.6%    -3.2%         
                                                                                    FX (against USD)
    Japan (USD)                            -0.2%    -2.1%         
                                                                                                                   Year to date 1 month
    Australia                              -1.4%    -0.2%         
                                                                         Asia ex- Japan                             -1.3%  -1.2% 
    Asia ex- Japan                         -3.0%    -3.9%         
                                                                         AUD                                        -5.5%  -2.7% 
    Africa                                -16.4%    -7.8%         
    Eastern Europe                         -7.6%    -6.8%            EUR                                        -3.3%  -1.6% 
    Latam                                 -13.7%    -10.3%           GBP                                          -2.0%  -1.4% 
    Middle East                            12.9%    2.0%             JPY                                           2.5%  1.0% 
    China                                   1.8%    -2.9%            SGD                                          -1.7%  -1.3% 
    India                                  -6.5%    3.0%          
    South Korea                            -9.5%    -7.3%         
    Taiwan                                  0.0%    -2.1%                       Alternatives
    BY SECTOR
                                                                                                                   Year to date 1 month
    Consumer Discretionary                  6.0%           1.5%   
                                                                         Composite (All strategies)                 -0.5%  -0.6% 
    Consumer Staples                       -6.9%           1.2%   
                                                                         Relative Value                              2.5%  0.8% 
    Energy                                  2.5%          -6.8%   
    Financial                              -5.5%          -5.0%      Event Driven                                 -4.2%  -0.3% 
    Healthcare                              2.5%           1.1%      Equity Long/Short                             1.1%  -0.4% 
    Industrial                             -3.5%          -4.5%      Macro CTAs                                   -2.0%  -3.3% 
    IT                                     10.0%           1.8%      Source: MSCI, JPMorgan, Barclays, Citigroup, Dow Jones, HFRX, FTSE,
    Materials                              -3.8%          -5.4%      Bloomberg, Standard Chartered
    Telecom                                -9.7%          -1.8%      *All performance shown in USD terms, unless otherwise stated
    Utilities                              -2.2%          -0.5%      *YTD performance data from 31 December 2017 to 21 June 2018 and
    Global Property Equity/REITS            0.0%           1.8%      1-month performance from 21 May 2018 to 21 June 2018

   This reflects the views of the Wealth Management Group                                                                                         12
Standard Chartered Bank
      Global Market Brief | 25 June 2018

17 Events calendar

                                                                                               JULY                01       Mexico Presidential and       Mexico Presi
                                                                                                                            Parliamentary elections       Parliamentar
                                                                                                                   26       ECB policy decision           ECB policy d
                                                                                                                   31       BoJ policy decision           BoJ policy de
   02        FOMC policy decision                    AUGUST

                                                                                               SEPTEMBER X                  Japan LDP President           Japan LDP P
                                                                                                                            election where Prime          election wher
                                                                                                                            Minister Abe faces            Minister Abe
                                                                                                                            challengers                   challengers
                                                                                                                   13       ECB policy decision           ECB policy d
  7          Brazil elections – 1st round       Brazil elections – 1st round
                                                   OCTOBER
                                                                                                                   19       BoJ policy decision           BoJ policy de
  25         ECB policy decision                ECB policy decision
                                                                                                                   27       FOMC policy decision          FOMC policy
  28         Brazil elections – 2nd round       Brazil elections – 2nd round
  31         BoJ policy decision                BoJ policy decision
                                                                                               NOVEMBER            06       US House (all 435 seats)      US House (a
                                                                                                                            and Senate (33 out of 100     and Senate (
                                                                                                                            seats) elections              seats) electio
                                                                                                                   09       FOMC policy decision          FOMC policy
  13         ECB policy decision                ECB policy decision                                                12-18    APEC Summit                   APEC Summ
                                                 DECEMBER
  20         FOMC policy decision               FOMC policy decision
  20         BoJ policy decision                BoJ policy decision

                                                                                               JANUARY             31       Fed policy meeting

  16         Nigeria general election due       Nigeria general election due
                                                 FEBRUARY
  X          Thailand to hold general           Thailand to hold general
             elections                          elections

                                                                                               MARCH               29       UK to leave the EU

  10         ECB policy decision                         APRIL
  17         Indonesia general election due

                                                                                               MAY                 02       FOMC policy decision              FOMC policy
                                                                                                                   X        India general election due        Malaysia Ge

  06         ECB policy decision                FOMC policy
                                                       JUNE decision
  20         FOMC policy decision               ECB policy decision

      Legend: X – Date not confirmed | ECB – European Central Bank | FOMC – Federal Open Market Committee (US) | BoJ – Bank of Japa

      This reflects the views of the Wealth Management Group                                                                                             13
Standard Chartered Bank
Global Market Brief | 25 June 2018

The team

Our experience and expertise help you navigate markets and provide actionable insights to reach your investment goals.

Alexis Calla                                 Belle Chan                           Cedric Lam
Chief Investment Officer                     Senior Investment Strategist         Investment Strategist

Steve Brice                                  Daniel Lam, CFA                      Abhilash Narayan
Chief Investment Strategist                  Senior Cross-asset Strategist        Investment Strategist

Christian Abuide                             Rajat Bhattacharya                   Ajay Saratchandran
Head                                         Senior Investment Strategist         Senior Portfolio Manager
Discretionary Portfolio Management
                                             Audrey Goh, CFA                      Samuel Seah, CFA
Clive McDonnell                              Senior Cross-asset Strategist        Senior Portfolio Manager
Head
Equity Investment Strategy                   Jill Yip, CFA                        Trang Nguyen
                                             Senior Investment Strategist         Portfolio Strategist
Manpreet Gill
Head                                         Francis Lim                          Kelly Tan
FICC Investment Strategy                     Senior Investment Strategist         Cross-asset Strategist

Arun Kelshiker, CFA                          DJ Cheong
Head                                         Investment Strategist
Portfolio Strategy

This reflects the views of the Wealth Management Group                                                                   14
Standard Chartered Bank
   Global Market Brief | 25 June 2018

21 Disclosure appendix

                                  THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.

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relevant person pursuant to section 275(1) of the SFA, or any person pursuant to section 275(1A) of the SFA, and in accordance with the conditions, specified in
section 275 of the SFA, or pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Singapore dollar deposits of non-bank
depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per depositor per Scheme member by law. Foreign
currency deposits, dual currency investments, structured deposits and other investment products are not insured.

Singapore SCB, Singapore Branch: This document is being distributed in Singapore by SCB, Singapore branch only to accredited investors, expert investors or
institutional investors, as defined in the Securities and Futures Act, Chapter 289 of Singapore. Recipients in Singapore should contact SCB, Singapore branch in
relation to any matters arising from, or in connection with, this document. In Singapore, Standard Chartered Private Bank is the Private Banking division of SCB,
Singapore branch. SCB, Singapore branch (Registration No. S16FC0027L) (GST Registration No.: MR-8500053-0) is licensed to conduct banking business under
the Banking Act, Chapter 19 of Singapore. IN RELATION TO ANY FIXED INCOME AND STRUCTURED SECURITIES REFERRED TO IN THIS DOCUMENT (IF
ANY), THIS DOCUMENT TOGETHER WITH THE ISSUER DOCUMENTATION SHALL BE DEEMED AN INFORMATION MEMORANDUM (AS DEFINED IN
SECTION 275 OF THE SFA). IT IS INTENDED FOR DISTRIBUTION TO ACCREDITED INVESTORS, AS DEFINED IN SECTION 4A OF THE SFA. Further, in
relation to fixed income and structured securities mentioned (if any), neither this document nor the Issuer Documentation have been, and will not be, registered as
a prospectus with the Monetary Authority of Singapore under the SFA. Accordingly, this document and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the product may not be circulated or distributed, nor may the product be offered or sold, or be made the subject
of an invitation for subscription or purchase, whether directly or indirectly, to persons other than a relevant person pursuant to section 275(1) of the SFA, and in
accordance with the conditions, specified in section 275 of the SFA, or pursuant to, and in accordance with the conditions of, any other applicable provision of the
SFA. Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per
depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
In relation to any collective investment schemes referred to in this document (if any), this document is for general information purposes only and is not an offering
document or prospectus (as defined in the SFA). This document is not, nor is it intended to be (i) an offer or solicitation of an offer to buy or sell any financial
product; or (ii) an advertisement of an offer or intended offer of any financial product.
Standard Chartered Bank
Global Market Brief | 25 June 2018

Thailand: Please study the Scheme Information Documents carefully e.g. investment policy, risks, fund performance before investing.

UAE: DIFC - Standard Chartered Bank, Dubai International Financial Centre (SCB DIFC) having its offices at Dubai International Financial Centre, Building 1, Gate
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our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in
the Islamic banking section here.

UAE: For residents of the UAE – Standard Chartered Bank UAE does not provide financial analysis or consultation services in or into the UAE within the meaning
of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis.

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terms of the South African Financial Advisory and Intermediary Services Act, 2002.

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                               THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.
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